Péter Barta

Winning a tax lawsuit is a difficult and lengthy process, and often there are no guarantees of victory even when you’re totally confident that you correctly accounted for every transaction. So it’s worth paying particular attention to the opportunities for triumphing over the tax authority relatively easily and without any complications. What is more, recent case law has expanded the range of these options.

Okay, but who’s signature is that?

Tax authority resolutions have to be signed, just like any other official document. But the matter of precisely who signs a given resolution is by no means irrelevant. The laws specify who is authorised to sign a given resolution, but the rules aren’t always followed to the letter.

In a very recent court case, the name and job title of the manager authorised to sign the document were printed clearly on a tax authority resolution, but it had actually been signed on behalf of that person by an unidentified person. This formal error was obvious based on a comparison of the image of the signature on the resolution, and that of another resolution signed by the same manager at an earlier date. Referring to this error, the court nullified the tax authority resolution and ordered the tax authority to conduct a new procedure.

Although such nullification doesn’t rob the tax authority of the opportunity to subsequently pass the same resolution – this time with the right signature –, even in the worst case scenario, it buys the taxpayer a little extra time. And of course, the limitation period continues to tick away as the new resolution is being made.

And while we’re talking about the limitation period...

The rules on the limitation period for the right of taxation changed in 2012. Until 2012, if the court ordered the tax authority to conduct a new procedure, the limitation period continued to count down, essentially with no change, throughout the new procedure. In cases brought after 2012, however, the tax authority has been given an additional 6 or 12 months if a repeated procedure took place.

In a recent court case it has become clear that the tax authority is provided with such an extension in cases only where the original procedure commenced after 1 January 2012. And there are still numerous cases, awaiting a court decision or tax authority resolution, where the original procedure dates back to before 1 January 2012. In more than one of these, there’s only a few months left until the limitation period expires.

In such situations the best tactic for the taxpayer is to try and get the court to nullify the original tax-authority resolution and order the tax authority to pass a new resolution. There are many ways to achieve this. In certain cases, the tax authority may have made a serious procedural error, or may have attached conflicting evidence. Often it’s possible to argue that the facts of the case, as stated by the tax authority in its resolution, cannot be logically inferred from the evidential procedures conducted by the tax authority. If the court nullifies the original resolution and the procedure is repeated for reasons such as this, then usually – taking into account the time need to carry out another audit and to pass the necessary resolutions, as well as the time available for commenting and appealing – there is no legal way of passing the legally binding resolution again within the limitation period. So in this way, it’s possible to win a tax lawsuit without decision on the merits of the case.

Not even the tax authority can get away with missing deadlines

The tax authority is bound by statutory deadlines, both when conducting the audit and when passing its resolution. The laws, however, don’t stipulate a specific sanction for non-compliance in the case of every deadline, even if missing deadlines can certainly jeopardise the taxpayer’s rights.

A recent judgement by the Supreme Court, however, has brought a change to the status quo. The court stated that if NAV significantly oversteps the deadline for passing a resolution, then it cannot impose a tax fine in that resolution. Nonetheless, this decision by the court still leaves some questions to be answered. For example, it isn’t clear what constitutes a “significant” overstepping of the deadline for passing a resolution.

Arguing that the tax authority missed the deadline for passing a resolution won’t be sufficient to win the tax lawsuit, but still enables the taxpayer to avoid paying a tax fine. But if the tax authority oversteps the auditing deadline, this is likely to give grounds for winning the case. This is because procedural actions (e.g. the result of interviewing a witness) performed by the tax authority after the auditing deadline has expired cannot be used as evidence in the procedure. If the auditing deadline has been exceeded, therefore, the taxpayer needs only to point out in court that the tax authority was not capable of fully proving its version of the facts with the auditing actions performed within the deadline, and this could lead to the nullification of the resolution.

Take the easiest path

At the start of a tax lawsuit – instead of getting lost in the tangled jungle of tax law interpretations – it’s advisable for taxpayers to take a close look at the formalities and simple arguments that could lead to an easy and painless win. As the examples above show, the laws and judicial practice offer such opportunities on a plate.